Key Takeaways
- AGs emphasized that crypto should not automatically be classified as securities and urged the court to apply consistent standards to crypto assets.
- The state AGs argued that the SEC’s legal action against Kraken could potentially harm consumers and interfere with state laws.
A group of state attorneys general has challenged the U.S. Securities and Exchange Commission (SEC) over its lawsuit against crypto exchange Kraken, contending that the SEC overstepped its jurisdiction.
The state AGs argued that the SEC’s legal action against Kraken could potentially harm consumers and interfere with state laws specifically designed to address the risks associated with non-securities products.
Filed on Feb. 29, the brief, supported by officials from several states including Arkansas, Iowa, Mississippi, Montana, Nebraska, Ohio, South Dakota, and Texas, as well as industry lobbyists, underscored concerns that the SEC’s lawsuit against Kraken could lead to the expansion of the definition of an “investment contract,” potentially impacting the regulatory landscape for cryptocurrencies.
The AGs emphasized that cryptocurrencies should not automatically be classified as securities and urged the court to apply consistent standards to crypto assets, similar to those applied in previous state cases.
The filing, echoing arguments made by Kraken and other crypto companies, highlighted the importance of preventing the preempting of state consumer protection laws by federal regulators.
It emphasized that states have enacted laws or regulations tailored to the unique risks posed by non-securities products and expressed concerns that the SEC’s actions could undermine those efforts. Furthermore, the filing indicated that the SEC’s exercise of authority beyond its mandate could potentially expose consumers to risks and disrupt existing state regulations.
In response to the SEC’s lawsuit against Kraken, filed in October 2023, the exchange denied the allegations and filed a motion to dismiss the case, arguing that the SEC lacked jurisdiction over its activities and that the digital assets it offered were not securities.
Kraken’s motion to dismiss, filed on Feb. 22, criticized the SEC’s legal theory, arguing that it could set a “dangerous precedent” and grant the SEC excessive authority over commerce. Kraken contended that the SEC’s interpretation of an “investment contract” lacked a limiting principle and could potentially subject a wide range of assets, including commodities like sports memorabilia and trading cards, to securities regulation.
